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Mortgage Company auctioned it for less than value.

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The underlying issue is whether she sold an asset like this for under market value in order to make herself eligible for Medicaid. It’s obvious that she didn’t. If the Medicaid caseworker denies her benefits based upon this event, appeal it, but I don’t think you need to be concerned at all.
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The issue here is that the house was sold by mortgage company, mortgage satisfied and rest of funds returned to mom, right?

I think this will be allright because the sale was out of her control.
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No, that shouldn't hurt you. I mean if Mom can't afford to pay the mortgage, how in the world can she afford to pay for medical care or a nursing home?
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